The Canadian dollar CADUSD strengthened to its highest level in nearly five months against its U.S. counterpart on Wednesday as oil prices rose and investors rebalanced portfolios near the end of the first quarter of the year.
The loonie was trading 0.2% higher at 1.2475 to the greenback, or 80.16 U.S. cents, after touching its strongest level since Nov. 10 at 1.2430. Since the start of March, the currency has gained 1.6%.
“We are seeing some month-end and quarter-end flows which are generally loonie-positive,” said Rahim Madhavji, president at KnightsbridgeFX.com. “Outside of that, we have seen a bit more strength in the oil markets.”
The price of oil, one of Canada’s major exports, settled 3.4% higher at $107.82 a barrel as another U.S. crude stock drawdown indicated tight supplies. In addition, investors worried about new Western sanctions against Moscow as Russian forces continued to bomb the outskirts of Ukraine’s capital.
Still, the safe-haven U.S. dollar fell to its lowest level in almost two weeks as data showing that German annual inflation rose to its highest mark in more than 40 years in March bolstered the euro.
Canadian inflation has also climbed to a multi-decade high, which has led to a more hawkish stance from the Bank of Canada. Investors are betting the central bank will begin hiking its key interest rate in half-percentage-point increments, with the first of the rarely used upsized moves possibly coming as soon as next month.
Canadian government bond yields eased across a flatter curve, tracking a move in U.S. Treasuries. The 10-year yield fell 4.2 basis points to 2.440%, after touching its highest intraday level since October 2018 at 2.607% on Tuesday.
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